Internet advertising undoubtedly offers companies cheap and effective audience targeting. Nick Hynes, chief executive of search marketing agency The Search Works, says: “In search engines, you only pay for the advertising when someone clicks on the search result. That process is measurable and trackable. You can tell exactly which key words, like ‘cheaper car insurance’, you should be listing on, and you can see how many people who click on the result will transform into customers. You don’t waste any money. This is revolutionary in the world of advertising.”

Indeed, internet-related advertising and marketing accounted for 9% of WPP’s revenues in 2006. Sorrell has stated that revenues from those activities contributed €733m to group revenues of €8.6bn in 2006, which were up nearly 10% on 2005. “New technologies have demonstrated the power of editorial publicity through fast-growing applications of new technology such as MySpace, YouTube, Facebook, Flickr and Second Life,” the company said in a statement, referring to the current crop of Web 2.0 services that rely on users to create content. Significantly, the next few months will see a huge acceleration of online advertising by blue-chip companies. Procter & Gamble (the biggest advertiser worldwide), Unilever and Heineken all recently announced that they will move much of their UK ad budgets away from television. Tellingly, the 25-year relationship between sportswear giant Nike and its ad agency Wieden + Kennedy ended when Nike decided it wanted to go with someone with more digital expertise.

Meanwhile, brewer Budweiser is increasing its digital marketing spend by 300% this year and launching its first exclusively online video ads promoting a virtual currency called “Bud Bucks”. “We didn’t just want to make TV ads and put them online,” explains Budweiser consumer marketing manager Andy Pearcey. “The content has been designed specifically for digital use.” Budweiser is primarily using online media to focus on its 18- to 34-year-old target market. More than 400 millions bottles and cans of Budweiser will carry a unique code that consumers can text or e-mail to the brewer to exchange for the virtual currency. Consumers can then redeem their Bud Bucks online to bid eBay-style for prizes. The brewer is also negotiating with YouTube to establish what it claims is the first video ad on the homepage targeting a UK audience. “Our target consumers are spending more and more time online; it is the perfect environment,” says Richard Hirst, general manager at Busch Media Europe, an arm of Budweiser parent Anheuser Busch.

In a way, the Budweiser campaign is typical for being atypical. When early surfers showed their resentment towards “traditional” online ads, such as website banners – and as customers began to use web browsers that block pop-up promotions – the ad industry had to develop new techniques to be noticed. The largest chunk of online advertising is “search”, which allows companies to jostle for high positions on search engines. The most effective internet advertising method – and the one that generates by far the most revenue – is Google Adsense. Last year Google billed around €4bn to Adsense users, and the service reportedly earns Google €730,000 per hour. Warren Cowan, chief executive of search marketing group Greenlight, points out: “In search engine marketing, users request the advertising they see. No other type of advertising has been able to tap into this ‘user-solicited’ market.”

Companies are gradually getting better at targeting consumers with ads using “behavioural matching” analysis. Yahoo has begun offering advertisers the opportunity to reach consumers who have expressed an intent to purchase something by, say, searching for “Volkswagen”, clicking on a car ad or using the car section of Yahoo’s price comparison site, Kelkoo. Like Google and Yahoo, mobile carriers already have lots of information on their users that will allow for the efficient targeting of advertising.